Rio Tinto's Profit Falls but Mining Firm Raises Payout -- WSJ
July 30 2020 - 3:02AM
Dow Jones News
By David Winning
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (July 30, 2020).
SYDNEY -- Rio Tinto PLC increased its midyear dividend payout
despite a 20% fall in net profit, as it balanced high iron-ore
prices with an uncertain outlook for the global economy.
Rio Tinto reported a net profit of $3.32 billion in the six
months through June, down from $4.13 billion a year earlier when it
wrote down its investment in the Oyu Tolgoi copper deposit in
Mongolia. Management said the decline in statutory profit reflected
higher impairment charges, exchange-rate losses and extra closure
costs for some assets.
The company said Wednesday its first-half underlying earnings,
which strip out some one-off items, fell by 4% to $4.75 billion,
beating the $4.09 billion forecast of analysts polled by The Wall
Street Journal.
Directors of the world's second-biggest mining company by market
value declared an interim dividend of $1.55 a share, up 3% from a
payout of $1.51 a year earlier.
The global economy suffered a severe contraction in the three
months through June, as the U.S. grappled with rising coronavirus
cases and other countries faced second waves of infections that are
proving harder to contain than initial outbreaks. Many economies
have started to reopen, but pandemic flare-ups have made it a bumpy
process and authorities have often had to reverse course and
tighten restrictions once again.
"Our industry has been hit by supply and demand shocks on a
scale that has never been seen before," Chief Executive
Jean-Sébastien Jacques said.
Navigating those shocks is a challenging task for global mining
companies, with the potential to create winners and losers
depending on where operations are based.
Iron-ore prices this month topped $110 a metric ton as supply
from Brazil was disrupted by the spread of the coronavirus at some
mine sites run by Vale SA. In contrast, Australia's iron-ore
production is in a region largely unaffected by virus cases,
enabling mining companies including Rio Tinto and BHP Group Ltd. to
continue shipping the commodity at high rates.
Rio Tinto's iron-ore exports rose by 1% in the three months
through June and it continues to forecast annual shipments of
between 324 million and 334 million tons. BHP's iron-ore output
rose by 11% in its most recent quarter.
A recent strengthening of demand in China, the world's top buyer
of iron ore and many other commodities, has provided another boost.
China this month said its economy grew 3.2% from a year earlier in
the second quarter, as authorities benefited from an aggressive
campaign to eradicate the virus within its borders. Steel capacity
utilization rates in the country have improved.
Still, Mr. Jacques has been cautious about the outlook,
particularly for copper. The Escondida copper mine in Chile is
operating with fewer workers as part of a strategy to limit the
risk of spreading the coronavirus. Rio Tinto estimates the pandemic
has disrupted 3% to 4% of global copper supply, and warns this
could increase further.
"Despite the challenging backdrop, we generated underlying
earnings before interest, tax, depreciation and amortization of
$9.6 billion, with a margin of 47%, driven by our strong and stable
operations, with all of our assets continuing to operate throughout
the first half," Mr. Jacques said.
Rio Tinto said its net debt totaled $4.83 billion at the end of
June, down from $12.90 billion four years ago, as the
Anglo-Australian company preferred higher shareholder returns over
the heavy investments of previous commodity cycles.
Acting too cautiously on investment carries risks for mining
companies, which must replace ore dug out of the ground with new
deposits or risk being unable to capitalize on a future recovery in
prices. Rio Tinto expects to spend $7 billion in each of the next
two years, and has signaled a new round of early work at a large
iron-ore deposit in Guinea that it owns with a Chinese partner.
On Tuesday, the company declared a maiden resource at its Winu
copper discovery in Western Australia, and said preliminary study
work points to a possible shallow open-pit mine development. It is
targeting first production from Winu in 2023.
Write to David Winning at david.winning@wsj.com
(END) Dow Jones Newswires
July 30, 2020 02:47 ET (06:47 GMT)
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